Is The Ringgit In Freefall?

The ringgit has begun weakening against more currencies over past weeks. The trend is worrying, considering that some of these currencies belong to Malaysia’s biggest import destinations.

Malaysia’s food import bill for 2021 was at RM63.6bil. Meanwhile, food inflation in June, was recorded at 6.1% compared with the headline inflation of 3.4%. While it is impossible to predict the movement of the ringgit, there are expectations that the ringgit may face downward pressure as more countries experience a pick-up in economic growth.

Between July 15 and Aug 15, the ringgit has weakened against almost all major regional and global currencies. Based on Bloomberg data, the ringgit declined by 4.16% against the Japanese yen, Thai baht (3.34%), South Korean won (2.05%) and Indonesian rupiah (1.92%).

After weakening significantly since March, the ringgit fell further by 1.74% against the Singapore dollar in the July 15 to Aug 15 period. Against the Philippine peso, it fell by 1.24%, while it weakened marginally by 0.37% and 0.07% against the Hong Kong dollar and the Taiwanese dollar respectively. The ringgit was flattish against the Chinese yuan, slipping by 0.02% in the one-month period. The ringgit dropped by 1.91% against the British pound sterling, the euro (1.01%) and the Australian dollar (3.61%). Against the US dollar, the ringgit fell further by 0.22% after weakening significantly since March.

Some of the currencies that have strengthened against the ringgit belong to Malaysia’s major import sources. They include Singapore, the United States, Taiwan, Japan and Europe.

The ringgit’s strength would depend on how the domestic economy performs to a large extent and also factors like interest rate differential, inflation hikes and speculative forces (“hot money”).

The aggressive interest rate hikes in the United States have triggered an outflow of funds from developing economies, including Malaysia, back into the world’s largest economy. This in turn has strengthened the greenback, resulting in many weaker currencies against the US dollar, including the ringgit. Unless BNM re-focuses on OPR and hikes it to 3%, the ringgit is doomed to fall further. Why should they increase it? Just look at imported inflation (net imports on food is over RM60 billion annually) and curtail it.

Reference:

Ringgit settles flat vs US dollar as inflation fears cloud sentiment, Ganeshwaran Kana, The Star, 17 August 2022